'No to bad bank' : Santander CEO

Source: El Pais - Mon 7th May 2012

The CEO of Banco Santander has spoken out against the prospect of creating a bad bank to cover the sector's toxic real estate assets.

The central government is proposing to force banks to remove problematic loans to the real estate sector from their portfolios and pass them over to newly created separate companies. However, these new 'Banks' would not have a banking license and their purpose would be restricted to selling off these assets. This would basically make these new operations 'bad banks', but the government is insisting against useage of the phrase given that the state will not cover any losses.

The government has also insisted that Banks increase their provisions to cover potential losses on real estate assets on their books by €53 billion.

Emilio Botín, Chairman of Santander, said how the Spanish financial system has made "very significant adjustments" over the past two years, ones that the "markets have yet to take on board."

Spain's Minister for the Economy, Luis de Guindos, told the press last week how the rules for removing toxic assets from the banks' balance sheet would be ready shortly. He said the assets would be transferred to the instrumental companies at "market" prices and provisioned for potential losses.

"Each bank will create a vehicle that will have rules that the government will define in a few weeks," De Guindos said.

In a report on the Spanish banking sector issued last week, the IMF said: "Unless the weak institutions are quickly and adequately cleaned up, the sound banks will suffer unnecessarily from a continued loss of confidence in the banking sector."

It suggested that public funding might be necessary to reduce the burden on the banks, but the government is against this idea.